Regarding Nigeria's plans to privatize its oil industry, a question: Can enough work be made sufficiently attractive to move the country significantly toward fulfillment of its rich potential?
From the perspective of international oil companies, privatization in Nigeria would not be the inaugural welcome that it has been elsewhere. International companies already operate in the country under joint ventures with state-owned Nigerian National Petroleum Corp. The military government simply proposes to sell NNPC's joint venture shares, which average 57%, as well as its four refineries.
Finance Minister Anthony Ani described the 5-year privatization plan at a Nigerian economic summit at the end of September and later to the International Monetary Fund. At a seminar in Lagos last week, he said, "Privatization will open our economy up for the foreign investment we very much need."
Ani deserves praise for his accurate assessment of Nigeria's needs and for his embrace of market principles. But privatization alone won't do the trick.
Risk vs. promise
Indeed, privatization will test the oil industry's ability to balance risk and promise. In strictly geologic terms, the Nigerian promise is large. An official of the local unit of Royal Dutch/Shell, which accounts for nearly half of the country's 2 million b/d of production, says total Nigerian output could more than double by 2010 if funding were available.
But nongeologic risks are high. The government of Gen. Sani Abacha rules by force, having voided elections held in 1993. Its heavy-handedness with Nigerians and expatriate businesses is notorious. And it governs within a culture of corruption and crime.
A June 28 travel warning from the U.S. Department of State describes conditions in Nigeria like this: "Violent crime affecting foreigners is an extremely serious problem, especially in Lagos and the southern half of the country. Visitors, as well as resident Americans, report widespread armed muggings, assault, burglary, carjackings, and extortion, often involving violence.
"Carjackings, roadblock robberies, and armed break-ins occur often, with victims sometimes shot by assailants for no apparent reason. Reports of armed robberies in broad daylight on rural roads in the northern half of the country appear to be increasing. Law enforcement authorities usually respond to crimes slowly, if at all, and provide little or no investigative support to victims. Pickpockets and confidence artists, some posing as local immigration and other government officials, are especially common at Murtala Muhammad Airport (Lagos)." The U.S. Department of Transportation has suspended direct air service to the Lagos airport due to lack of security measures.
Privatization in Nigeria thus has much to overcome.
At present, companies operating in Nigeria insulate their assets and workers from the country's perils to the extent possible. It's expensive and confining. That companies have chosen to manage the hazards and inconvenience attests to the high quality of the Nigerian hydrocarbon resource.
Nongeologic risks
But geology isn't everything. In company investment decisions, country risks offset prospect values. Companies necessarily seek compensation in the operating terms they negotiate with host governments. Privatization deals thus will have to accommodate Nigeria's extreme nongeologic risks if the country is to attract the new foreign capital that it needs.
Any privatization effort deserves applause and serious industry attention. But privatization alone won't solve all or even most of Nigeria's problems. The culture of corruption of crime must end, which requires the restoration of law-which now derives not from popular conscience but from the rule of force. For now, companies must weigh Nigeria's country risks and worry about how military rulers might respond to disappointment.
Copyright 1996 Oil & Gas Journal. All Rights Reserved.
